Many state legislatures have recently convened for 2025 legislative sessions, and members have already proposed a significant number of bills that, if passed, would materially impact transactions and/or corporate structures across the healthcare industry. Much of the proposed legislation aligns with recent trends, as a growing number of states seek to implement or expand upon existing notification and approval laws for a multitude of types of healthcare transactions. Other proposals seek to impose additional restrictions on the corporate structure of healthcare providers and their relationships with management services organizations (MSOs).
Below we provide an overview of proposed legislation across states, which we will be tracking throughout the current legislative sessions. Stay tuned for additional updates as we continue to monitor state legislatures for changes and new proposals that could impact healthcare transactions.
Connecticut
January saw a flurry of new proposed bills in Connecticut targeting private equity investment in healthcare, which are publicly backed by Governor Ned Lamont and Dierdre Gifford, the commissioner of Connecticut's Office of Health Strategy.
Noting that proposed bills in Connecticut are largely statements of intent, rather than fully drafted bills, the following are the more significant proposals:
- B. 261 would restrict private equity firms from buying, operating, or holding a controlling interest in hospitals, including, but not limited to, leasing property back to hospitals for a fee after acquiring land rights.
- B. 469 would (1) impose restrictions on private equity firms' acquisition of hospitals and prohibit hospitals from participating in real estate investment trust transactions and (2) establish physician-led ownership requirements for medical groups and ambulatory surgical centers.
- B. 837 would, among other things, amend C.G.S.A. § 19a-486i (Connecticut's "material transaction" notification statute) to impose additional disclosure requirements for group practices related to intended acquisitions or mergers, including those by or with any hospital, PE company, insurer, corporation or group practice.
- B. 6570 would (1) prohibit private equity firms from acquiring ownership or control of a health care provider's practice or a health care facility, and (2) require health care provider practices and health care facilities to disclose the ownership structure to the Health Systems Planning Unit.
While proposed bills are general outlines for future legislation, Connecticut lawmakers are sending a clear message to potential investors. Based on recent remarks from Governor Lamont and Commissioner Gifford, the new proposals appear to be in direct response to the recent high-profile bankruptcies of Steward Healthcare and Prospect Medical Holdings.
Indiana
Last year, Indiana enacted legislation that requires Indiana health care entities involved in a merger or acquisition with another health care entity with assets totaling $10 million or more to notify the state's attorney general at least 90 days prior to any proposed merger or acquisition. See Ind. Code § 25-1-8.5-1, et seq. Under the current law, the attorney general has the authority to request information and review the transaction for any antitrust concerns. H.B. 1666, introduced on January 21, 2025, would expand the current law by giving the attorney general authority to approve or deny transactions involving private equity partnerships, regardless of the total assets of the parties, if it believes the transaction will result in adverse financial impacts or health care outcomes.
H.B. 1666 also proposes to add new reporting requirements for hospitals, physician group practices, insurers, third-party administrators, and pharmacy benefit managers (PBMs) doing business in Indiana. Such entities would be required to file annual disclosures concerning those persons or entities with 5% or more ownership interest, controlling interest, or interest as a "private equity partner." Information reported under these provisions would be made publicly available and state agencies would be permitted to take disciplinary action or assess per diem fines for non-compliance.
Massachusetts
As we previously reported, on January 8, the governor of Massachusetts signed House Bill 5159 into law. At a high level, the new Law expands Massachusetts' existing health care transaction notice process and implements new reporting and oversight requirements on the health care sector, particularly in relation to private equity companies, health care real estate investment trusts, MSOs, pharmaceutical manufacturing companies, and PBMs.
Among other changes noted in our prior coverage, the HB5159 expands Massachusetts' existing notice of material change and Cost Market Impact Review (CMIR) process by expanding the definition of material change to include, among other things: (1) significant expansions in a provider or provider organization's capacity; (2) transactions involving a significant equity investor which result in a change of ownership or control of a provider or provider organization; and (3) significant acquisitions, sales or transfers of assets. In addition, the HB5159 allows the Massachusetts Health Policy Commission to ask not only the provider or provider organization, but also significant equity investors and other associated parties, to submit documents and information in connection with a notice of material change or a CMIR, including detailed financial, ownership and management information.
New Mexico
Currently, certain proposed transactions involving hospitals require prior notice to and approval from New Mexico's Office of the Superintendent of Insurance (OSI). See N.M. § 59a-63-1, et seq. Introduced on January 21, 2025, S.B. 14 would create notice and approval requirements applicable to transactions (including private equity investment) that involve hospitals and, if certain revenue thresholds are met, other health care entities. If the revenue thresholds are not met, a transaction may still require notice and approval if it is the latest in a series of transactions within a five-year period that involves the acquisition, merger, or change in control of health care entities and involves one or more of the same controlling parties.
Parties to a proposed transaction would be required to submit 60 days' prior notice to OSI, which would complete a preliminary review of the transaction within 60 days after receiving notice. OSI may determine a more comprehensive review is required, which must be completed within 90 days and could take up to 180 days if OSI is considering disapproving the transaction. In such cases, OSI would require an administrative hearing. A transaction cannot be effectuated until OSI approves the transaction and administrative fines can be assessed for each violation. OSI would be able to approve a transaction with or without conditions, including ongoing reporting requirements. Additionally, all health care entities would be required to annually disclose information regarding their organizational structure, ownership, control, and relationships with MSOs.
The proposed legislation also includes whistleblower protections, including penalties for retaliation against those who participate in administrative hearings or otherwise report information regarding transactions.
New York
New York currently requires health care entities, including MSOs, to provide notice to the Department of Health (DOH) 30 days in advance of certain material transactions. See N.Y. Pub. Health Law § 4552. The law defines "material transaction" to include mergers, acquisitions or affiliations with a health care entity, in addition to "formation of a partnership, joint venture, accountable care organization, or MSO for the purpose of administering contracts with health plans, third-party administrators, pharmacy benefit managers, or health care providers." However, current law does not permit DOH to review and approve such transactions. On January 21, 2025, Governor Kathy Hochul introduced her proposed Executive Budget for FY 2026, which includes provisions that would amend and expand the existing notification framework.
The legislation would create a CMIR process for material transactions. If the legislation is enacted, parties would be required to submit notice of certain material transactions 60 days in advance. DOH would then conduct a preliminary review of each proposed transaction and, in its discretion, conduct a full cost and market impact review. DOH may delay a proposed transaction up to an additional 180 days while it completes the CMIR.
The legislation would also impose additional disclosure requirements on the transaction parties. In the required DOH notices, parties to the transaction would be required to disclose information regarding any prior or pending operational closures or substantial reductions in services within the last three years (including for any health care entities owned by a controlling person or parent company), as well as any transactional components involving sale-leaseback agreements or mortgage or lease payments associated with real estate. Additionally, for five years following closing, the parties would be required to submit annual reports to DOH assessing the impacts of the transaction on cost, quality, access, health equity, and competition.
Oregon
Oregon Senate Bill 951 strongly resembles last year's House Bill 4130 and is drawing the attention of many physician practice management (PPM) investors. Oregon's bill attempts to limit or prohibit many of the devices on which private equity firms and other PPM investors typically rely to ensure long-term relationships with their managed practices.
As drafted, the act would become effective upon passage. All MSO agreement renewals, acquisitions, sales, or transfers of ownership or membership interests in a professional medical entity that occur after the passage date will be subject to the statute beginning on January 1, 2026. MSOs and medical practice entities with current arrangements that do not renew have an extended deadline will become subject to the statute three years later, on January 1, 2029.
Dual Affiliation Restrictions
The bill broadly prohibits an MSO and its owners, directors, officers, employees and contractors (together, an MSO) from owning or controlling shares; serving as directors or officers of; becoming employees or independent contractors of; or otherwise managing, directing the management of, or participating in the managing of an affiliated professional medical entity.
A list of specifically prohibited activities suggests that the traditional bifurcation of "clinical" and "non-clinical" functions assumed by the MSO and professional entity, respectively, may be less clear-cut if the bill becomes law. Nonetheless, the bill explicitly allows an MSO to assist in carrying out the activities above, so long as it does not exercise ultimate decision-making authority. The bill also allows an MSO to purchase, lease, or take assignment of the assets of a professional medical entity in an arms-length transaction.
An MSO may not exercise a proxy or take or exercise a right or power to vote the shares of a professional medical entity with which the MSO has a contract for management services on behalf of another person and the MSO may not participate in hiring, terminating, evaluating the performance of, setting work schedules or compensation for, or otherwise specifying terms of employment of a medical licensee.
Some exceptions to the dual-affiliation restriction include:
- An individual who provides medical services or health care services on or behalf of a professional medical entity, so long as the individual does not own or control 10% or more of the total shares or interest in the professional medical entity; is not a shareholder in or a director, member, manager, officer or employee of a MSO; and is compensated the market rate for their services.
- An individual who owns shares or an interest in a professional medical entity and a MSO with which the professional medical entity has a contract for management services if the individual's ownership of shares or an interest in the professional medical entity is incidental and without relation to the individual's compensation as a shareholder, director, member, manager, officer or employee of, or contractor with, the MSO.
- The shareholders, directors, members, managers, officers or employees of a professional medical entity if the professional medical entity functions as an MSO or owns a majority of the shares of or interest in the MSO.
- A physician who is a shareholder, director or officer of a professional medical entity and who also serves as a director or officer of an MSO with which the professional medical entity has a contract for management services if the physician does not receive compensation from the MSO for serving as a director or officer of the MSO and other conditions are met.
- An MSO that holds a majority of the shares of or interest in a professional medical entity if the professional medical entity is solely and exclusively: a PACE organization; a mental health or substance use disorder crisis line provider; an urban Indian health program that is state-funded under 25 U.S.C. 1601 et seq.; a recipient of a Tribal Behavioral Health or Native Connections program grant; a behavioral health care entity certified by the Oregon Health Authority; a hospital; a long-term care facility; or a residential care facility.
Active Practice Requirement
An employee of (or individual who seeks employment with) an MSO who is also a shareholder, director, member, officer or employee of a professional entity must actively participate in the medical or clinical practice or management of the professional entity and be subject to the professional obligations, ethics, and duties to the professional medical entity and the individual's patients that are required under the individual's license. The MSO must verify the individual's active participation and compliance with the individual's professional obligations, ethics and duties before employing the individual.
Note that, separately, Oregon HB 3225 provides that the physician majority shareholders and directors must: (1) have a domicile within the state; (2) reside within the state not fewer than 275 days out of each calendar year; and (3) be actively involved in providing or managing patient care.
Shareholder's Agreements
A professional corporation may relinquish or transfer control over the professional corporation's administrative, business or clinical operations only if the professional corporation executes a shareholder agreement exclusively between or among and for the benefit of a majority of shareholders who are physicians licensed in Oregon to practice medicine and the shareholder agreement complies with the provisions of O.R.S. 60.265.
Further, a professional corporation may not provide in its bylaws, in a contract, or other arrangement for the removal of a physician director from the professional corporation's board of directors or as an officer except by a majority vote by the physician shareholders of each class of shares entitled to vote, or, as appropriate, by a majority vote of the physician directors.
Non-Competition, Non-Disclosure, and Non-Disparagement Agreements
Non-competition agreements between a physician and a professional medical entity would be void, except in the following cases:
- The licensee owns 10% or more of the interests in the entity desiring the restriction, or the physician owns 10% or less of the interests in such entity and the non-compete isn't being entered into in connection with the sale of such interests.
- The licensee is a shareholder or member of a professional medical entity that does not have a contract for management services with a management services organization and the noncompetition agreement is with the professional medical entity.
- The licensee does not engage directly in providing medical services, health care services or clinical care.
Non-disclosure and non-disparagement agreements between medical licensees and MSOs or hospitals are also unenforceable, except if the employment of the licensee was terminated for cause. Such agreements cannot prevent or otherwise restrict a good faith report of information that the licensee believes is evidence of violation of law.
Vermont
In 2015, Vermont passed legislation codified at Vt. Stat. Ann. Tit. 18 § 9405c(b) regulating certain health care transactions, but only with respect to hospitals and without any consent authority. Specifically, hospitals are required to notify the Attorney General when a party to a transaction in which the hospital acquires a medical practice.
On January 23, 2025, House Bill 71 entitled, "An act relating to health care entity transaction oversight and clinical decision making" (H.B. 71) was read for the first time and referred to the House Committee on Health Care. The stated purpose of H.B. 71 is to require health care entities – including providers and practices, health care facilities, provider organizations, PBMs and health insurers –to provide notice to the Green Mountain Care Board (Board) and Attorney General at least 180 days prior to entering into certain types of material transactions and would direct the Board, in consultation with the Attorney General, to review certain proposed transaction, and approve, approve with conditions, or disapprove them.
Material transactions requiring such notice would include: (1) corporate mergers including one or more health care entities; (2) acquisitions of one or more health care entities, including insolvent health care entities; (3) affiliations, arrangements, or contracts that result in a change of control for a health care entity; (4) formations of partnerships, JVs, ACOs, parent organizations, or MSOs for the purpose of administering contracts with health insurers, TPAs, PBMs, or health care providers; (5) sales, leases, affiliations, or transfers of control for a board of directors or governing body of a health care entity; (6) real estate sales or lease agreements involving a material amount of assets of a health care entity; and (7) closures of a health care facility, or closures, discontinuances, or significant reductions of any essential health care service provided by a health care entity that is either a provider organization or health care facility or any new contracts or clinical or contractual affiliations that will eliminate or significantly reduce essential services.
A material change transaction can occur during a single transaction or in a series of related transactions involving a health care entity within Vermont that has total assets, total revenues, or anticipated annual revenues for new entities of at least $1 million, including both in-state and out-of-state assets and revenues.
H.B. 71 also includes significant regulation of agreements between medical practices and MSOs, alongside other CPOM restrictions, including imposing "meaningful ownership" requirements on practice owners, prohibiting the use of stock transfer restriction agreements, limiting dual ownership/physician ownership in management service organizations and prohibiting many forms of restrictive covenants. H.B. 71 would require public reporting on ownership and control of certain health care entities. If passed, the law would take effect on July 1, 2025.
Washington
On January 21, 2025, several Washington state Senators introduced Senate Bill 5387 (S.B. 5387), a bill concerning the corporate practice of medicine, which also serves to restrict many of the devices private equity firms and other PPM investors typically rely on to ensure long-term relationships with their managed practices. If enacted, S.B. 5387 would establish statutory guidelines for the ownership and management of medical practices.
Professional Service Corporations and Dual Affiliation Restrictions
With limited exceptions, S.B. 5387 makes it unlawful for an unlicensed individual or entity to (1) practice medicine; (2) own a medical practice; (3) employ licensed health care providers; or (4) otherwise engage in the practice of medicine. In a professional service corporation organized for the purpose of establishing a medical practice, Washington-licensed healthcare providers must: (1) hold a majority of the shares entitled to vote; (2) be a majority of the directors; and (3) hold all officer positions except secretary and treasurer. Majority shareholders must be present in the state and "substantially engaged in delivering care and managing the practice."
Among other restrictions, a shareholder, director or officer of a medical practice may not:
- Own or control shares in, serve as a director or officer of, be an employee of or an independent contractor with, or otherwise participate in managing both the medical practice and an MSO that is contracted with the medical practice.
- Receive substantial compensation or remuneration from an MSO in return for ownership or management of the medical practice.
- Transfer or relinquish control over the issuance of shares of stock in the medical corporation or over the sale, or the encumbrance of the sale of the medical practice's shares or assets.
These proposed and enacted laws are part of a larger, ongoing trend toward increasing state oversight and regulation of health care transactions and investments in the health care industry.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
